Turkey: A New Type Of Lawsuit For Group Companies - Controllıng Company And Its Board Of Dırectors' Lıabılıty For Compensatıon In Case Of Unlawful Abuse Of Control

Last Updated: 19 September 2013
Article by Serdar Paksoy and Gokhan Bozkurt


Group companies consist of a main "controlling company" exerting dominance over one or more "controlled companies", either by way of holding the controlled company's majority shares or concluding contracts or otherwise having de facto control over the controlled company. In order to ensure accountability and the balance of interests, the new Turkish Code of Commerce numbered 6102 ("TCC") has subjected the relationship between a controlling company and its controlled companies to certain rules. According to the TCC, all acts contrary to these rules will result in the controlling company and its directors' liability for compensation.

As a result of these rules regarding controlling companies and directors, numerous types of claims have been introduced. Among these claims, the liability lawsuit regarding "Unlawful Abuse of Control", set forth in Article 202 of the TCC, comes up as the most prominent one. There are two different forms of liability provided for by the Article: (1) the lawsuit for liability arising from the controlling company's intervention in the management of the controlled company (202/1) and (2) the lawsuit for liability of the controlling company for the controlled company's general assembly or some major decisions of the board of directors (202/2).

Protection of the Controlled Company from the Controlling Company

According to the rule set forth in the first paragraph of Article 202, a controlling company must take into account the interests of the controlled company when exercising its control and shall not cause any losses for the controlled company. Should any loss result for the controlled company, such loss shall be offset by the controlling company. Since the examples of loss cited in the Article result from actions within the authority of the board of directors of the controlling company, the Article mainly regulates the liability arising from interventions by the controlling company on the controlled company's board of directors. It is therefore intended to direct the liability upwards to the controlling company's board of directors'.

Article 202 provides examples of situations of loss, which can be defined as the diminishment of assets or the putting of assets under the risk of diminishment. In particular, it mentions the "inducement" by the controlling company of the controlled company: (1) to conclude legal transactions, such as the transferring of a business, assets, funds, personnel, credits and debts; (2) to reduce or transfer profits; (3) to limit its assets with rights in rem or in personam; (4) to restrict or cease its investments and (5) to undertake sureties, warranties and guarantees. Any material damages arising as a result of these abovementioned instances are not decisive. Rather, it is sufficient that a transaction was concluded in a manner that results in a "loss" of any type to the controlled company.

If the controlled company suffers any losses as a result of the intervention of the controlling company, then the controlling company will be under the duty to offset such loss suffered by the controlled company. According to this rule, the controlling company will either compensate the loss of the controlled company or undertake to compensate the loss of the controlled company, both to be within the relevant activity year.

Therefore, the provision both ensures the controlled company's recovery of its losses which may arise from the controlling company's interventions, and also leaves an open door to the exercise of the controlling company's policies over the controlled company by way of offsetting, which bars the controlled company from filing a lawsuit against the controlling company.

Compensation Lawsuit against the Controlling Company and the Members of Its Board of Directors

If, as a result of the inducement by the controlling company and a top-down order, an act or transaction is concluded that would breach the controlled company's board of directors' duty of care resulting in a loss by the controlled company, and no offset is made against this loss in that activity year, the controlled company's shareholders or creditors can file a compensation claim against the members of the board of directors of the controlling company, and claim for compensation for the controlled company's losses.

The controlling company and its board of directors' members may be relieved of liability only if they can prove that the transaction, which resulted in a loss by the controlled company, could have been concluded or avoided by members of an independent company's board of directors, who would observe the company's interests in good faith and act with a prudent director's care under the same or similar circumstances.

Coercion into Purchasing Shares by Court Decision

Besides the compensation lawsuit, the TCC entitles the shareholders of the controlled company to another alternative right. According to the relevant provision, the court can decide that the controlling company purchases the shares of the claimant shareholders of the controlled company instead of paying compensation, provided that such decision is equitable. Even if there is no request by shareholders to have their shares purchased, the court can deliver a coercion decision per se for the purchase of the shares by the controlling company.

This provision of the TCC would also apply if the controlled company had been suffering a loss as of the date of the TCC's entry into force. According to the rule, a controlled company's loss in existence at the time of the TCC's entry into force, which would cover losses before 01.07.2012, must be offset or undertaken to be offset by the controlling company within two years after the TCC enters into force. Otherwise, if a controlling company fails to rectify such loss within this time frame, the controlled company can file a claim against the controlling company at the end of the two year period, namely after 01.07.2014.

Right to File Cases against Foreign Shareholders of Foreign Capital Companies

Group companies with foreign shareholders are also subject to these provisions. The TCC allows for the extension of these provisions to group companies of such structure, and the right to file liability cases in Turkey, provided that the registered address of either the controlling company or the controlled company is in Turkey. Therefore, this provision paves the road for local shareholders or creditors to file cases in Turkey against the foreign controlling company (TCC Art. 202/1-e).

In conclusion, this new type of lawsuit introduced by the TCC aims to prevent the abuse of the controlling company's control against the controlled company, and repositions the controlling company to be accountable to the controlled company's shareholders and creditors. The breach of the rules results in important consequences and may lead to compensation liability of both the controlling company and members of its board of directors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions